Issue of Shares at Par and Premium: Journal Entries

Issue of shares becomes much easier when you stop seeing it as a list of entries and start seeing it as a collection process.

A company is raising share capital. It may collect money in one step or in stages. Sometimes the share is issued at its face value. Sometimes it is issued above face value. Your job in Accountancy is to place each part of the money in the correct account.

That is the heart of this chapter.

If the company receives money equal to the face value of the share, it goes to Share Capital Account. If it receives anything above face value, that extra amount goes to Securities Premium Reserve Account.

Once this separation is clear, journal entries for shares issued at par and premium become logical, not mechanical.

What Issue of Shares Means

A company raises capital by issuing shares to investors. The investors who receive shares become shareholders of the company.

In school-level company accounts, shares are usually issued in stages:

Stage	Meaning
Application	Money received from people who apply for shares
Allotment	Shares are allotted, and the applicant becomes a shareholder
Calls	Further instalments collected after allotment

The company may collect the full amount at once, but many questions divide the amount into application, allotment, first call, and final call.

For example, a company may issue shares of Rs. 10 each, payable as:

Stage	Amount per share
On application	Rs. 3
On allotment	Rs. 4
On first and final call	Rs. 3
Total	Rs. 10

Here the full amount collected is equal to face value, so the shares are issued at par.

If the same share of Rs. 10 is issued at Rs. 12, the company receives Rs. 2 extra per share. That extra Rs. 2 is premium.

Face Value, Issue Price, Par, and Premium

Before writing entries, keep these four words clear.

Term	Simple meaning
Face value	The nominal value printed or stated for one share
Issue price	The price at which the company actually issues the share
At par	Issue price is equal to face value
At premium	Issue price is more than face value

If a share has face value Rs. 10 and is issued at Rs. 10, it is issued at par.

If a share has face value Rs. 10 and is issued at Rs. 12, it is issued at a premium of Rs. 2.

Face value	Issue price	Type of issue	Premium
Rs. 10	Rs. 10	At par	Nil
Rs. 10	Rs. 12	At premium	Rs. 2
Rs. 100	Rs. 120	At premium	Rs. 20

Why Premium Is Not Added to Share Capital

This is one of the most important points in the topic.

Share Capital Account records the face value of shares issued. It does not record the market excitement, reputation of the company, or extra price paid above face value.

So when shares are issued at premium, the premium is credited separately to Securities Premium Reserve Account.

For example, if 10,000 shares of Rs. 10 each are issued at Rs. 12 each:

Particular	Amount
Share capital, 10,000 x Rs. 10	Rs. 100,000
Securities premium, 10,000 x Rs. 2	Rs. 20,000
Total money received	Rs. 120,000

The company has received Rs. 120,000, but Share Capital Account is credited only by Rs. 100,000. The remaining Rs. 20,000 is credited to Securities Premium Reserve Account.

The Basic Rule Behind All Entries

There are only two basic movements:

1. When money is received, Bank Account is debited.
2. When an instalment becomes due, the instalment account is debited and Share Capital or Securities Premium Reserve is credited.

This is why entries often come in pairs.

For application money:

Particulars	Debit	Credit
Bank A/c Dr.	Amount received
To Share Application A/c		Amount received

Then, when shares are allotted, application money is transferred:

Particulars	Debit	Credit
Share Application A/c Dr.	Application money on allotted shares
To Share Capital A/c		Amount transferred to capital

For allotment money due:

Particulars	Debit	Credit
Share Allotment A/c Dr.	Amount due
To Share Capital A/c		Capital part
To Securities Premium Reserve A/c		Premium part, if any

For allotment money received:

Particulars	Debit	Credit
Bank A/c Dr.	Amount received
To Share Allotment A/c		Amount received

The same idea applies to calls.

Journal Entries for Shares Issued at Par

Shares are issued at par when the issue price equals the face value.

Suppose a company issues 20,000 equity shares of Rs. 10 each at par. The amount is payable as:

Stage	Amount per share
Application	Rs. 3
Allotment	Rs. 4
First and final call	Rs. 3

Total issue price is Rs. 10, which is exactly equal to the face value. So there is no premium.

Entry 1: Application Money Received

Application money received:

20,000 shares x Rs. 3 = Rs. 60,000

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 60,000
To Share Application A/c		Rs. 60,000

Entry 2: Application Money Transferred to Share Capital

After allotment, application money on allotted shares becomes part of share capital.

Particulars	Debit	Credit
Share Application A/c Dr.	Rs. 60,000
To Share Capital A/c		Rs. 60,000

Entry 3: Allotment Money Due

Allotment money due:

20,000 shares x Rs. 4 = Rs. 80,000

Particulars	Debit	Credit
Share Allotment A/c Dr.	Rs. 80,000
To Share Capital A/c		Rs. 80,000

Entry 4: Allotment Money Received

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 80,000
To Share Allotment A/c		Rs. 80,000

Entry 5: First and Final Call Money Due

Call money due:

20,000 shares x Rs. 3 = Rs. 60,000

Particulars	Debit	Credit
Share First and Final Call A/c Dr.	Rs. 60,000
To Share Capital A/c		Rs. 60,000

Entry 6: First and Final Call Money Received

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 60,000
To Share First and Final Call A/c		Rs. 60,000

Now check the total credited to Share Capital Account:

Stage	Credit to Share Capital
Application	Rs. 60,000
Allotment	Rs. 80,000
First and final call	Rs. 60,000
Total	Rs. 200,000

This matches:

20,000 shares x Rs. 10 face value = Rs. 200,000

Journal Entries for Shares Issued at Premium

Now let us use a premium example.

Suppose a company issues 20,000 equity shares of Rs. 10 each at Rs. 12 per share. The amount is payable as:

Stage	Amount per share
Application	Rs. 3
Allotment	Rs. 5, including Rs. 2 premium
First and final call	Rs. 4
Total	Rs. 12

The face value is Rs. 10 and the issue price is Rs. 12.

So:

Premium per share = Rs. 12 - Rs. 10 = Rs. 2

Here the question clearly says the premium is included in allotment. So Securities Premium Reserve Account will be credited at the allotment stage.

Entry 1: Application Money Received

Application money received:

20,000 shares x Rs. 3 = Rs. 60,000

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 60,000
To Share Application A/c		Rs. 60,000

Entry 2: Application Money Transferred to Share Capital

Application money contains no premium in this example.

Particulars	Debit	Credit
Share Application A/c Dr.	Rs. 60,000
To Share Capital A/c		Rs. 60,000

Entry 3: Allotment Money Due, Including Premium

Allotment due:

20,000 shares x Rs. 5 = Rs. 100,000

But this Rs. 5 has two parts:

Part	Amount per share	Total
Capital part	Rs. 3	Rs. 60,000
Premium part	Rs. 2	Rs. 40,000
Total allotment due	Rs. 5	Rs. 100,000

Now write the entry:

Particulars	Debit	Credit
Share Allotment A/c Dr.	Rs. 100,000
To Share Capital A/c		Rs. 60,000
To Securities Premium Reserve A/c		Rs. 40,000

This entry is where many students make a mistake. They debit Share Allotment correctly but credit the full amount to Share Capital. That is wrong because Rs. 40,000 is premium.

Entry 4: Allotment Money Received

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 100,000
To Share Allotment A/c		Rs. 100,000

Entry 5: First and Final Call Money Due

Call money due:

20,000 shares x Rs. 4 = Rs. 80,000

The call does not include premium in this example, so the full call amount is credited to Share Capital.

Particulars	Debit	Credit
Share First and Final Call A/c Dr.	Rs. 80,000
To Share Capital A/c		Rs. 80,000

Entry 6: First and Final Call Money Received

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 80,000
To Share First and Final Call A/c		Rs. 80,000

Now check the totals.

Account	Total credit
Share Capital Account	Rs. 200,000
Securities Premium Reserve Account	Rs. 40,000
Total	Rs. 240,000

This matches:

20,000 shares x Rs. 12 issue price = Rs. 240,000

Where Premium May Be Called

Premium is often collected with allotment, but it can be collected at different stages if the question says so.

Premium collected with	What changes in the entry
Application	Share Application transfer credits Share Capital and Securities Premium Reserve
Allotment	Share Allotment due credits Share Capital and Securities Premium Reserve
Call	Share Call due credits Share Capital and Securities Premium Reserve

The rule does not change.

Wherever premium is included, split that instalment into capital and premium.

Premium With Application

Suppose a Rs. 10 share is issued at Rs. 12, and application money is Rs. 5 including Rs. 2 premium.

When application money is received:

Particulars	Debit	Credit
Bank A/c Dr.	Total application money
To Share Application A/c		Total application money

When application money is transferred:

Particulars	Debit	Credit
Share Application A/c Dr.	Total application money
To Share Capital A/c		Capital part
To Securities Premium Reserve A/c		Premium part

Premium With Allotment

This is the most common pattern in school questions.

Particulars	Debit	Credit
Share Allotment A/c Dr.	Allotment due including premium
To Share Capital A/c		Capital part
To Securities Premium Reserve A/c		Premium part

Premium With Call

If premium is collected with a call, the call due entry is split.

Particulars	Debit	Credit
Share First Call A/c Dr.	Call due including premium
To Share Capital A/c		Capital part
To Securities Premium Reserve A/c		Premium part

A Simple Working Note Format

Before writing journal entries, make a small working note like this:

Particular	Amount
Number of shares	20,000
Face value per share	Rs. 10
Issue price per share	Rs. 12
Premium per share	Rs. 2
Total share capital	Rs. 200,000
Total securities premium	Rs. 40,000

Then write the stage-wise split:

Stage	Amount per share	Capital part	Premium part
Application	Rs. 3	Rs. 3	Nil
Allotment	Rs. 5	Rs. 3	Rs. 2
First and final call	Rs. 4	Rs. 4	Nil
Total	Rs. 12	Rs. 10	Rs. 2

This table is your map. Once it is correct, the entries become simple.

Solved Example: Shares Issued at Par

Moonlight Ltd. issued 15,000 equity shares of Rs. 10 each at par. The amount was payable as Rs. 4 on application, Rs. 3 on allotment, and Rs. 3 on first and final call. All money was received.

Working

Stage	Calculation	Amount
Application	15,000 x Rs. 4	Rs. 60,000
Allotment	15,000 x Rs. 3	Rs. 45,000
First and final call	15,000 x Rs. 3	Rs. 45,000
Total	15,000 x Rs. 10	Rs. 150,000

Journal Entries

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 60,000
To Share Application A/c		Rs. 60,000
Share Application A/c Dr.	Rs. 60,000
To Share Capital A/c		Rs. 60,000
Share Allotment A/c Dr.	Rs. 45,000
To Share Capital A/c		Rs. 45,000
Bank A/c Dr.	Rs. 45,000
To Share Allotment A/c		Rs. 45,000
Share First and Final Call A/c Dr.	Rs. 45,000
To Share Capital A/c		Rs. 45,000
Bank A/c Dr.	Rs. 45,000
To Share First and Final Call A/c		Rs. 45,000

Final Share Capital credit is Rs. 150,000, which is equal to 15,000 shares x Rs. 10.

Solved Example: Shares Issued at Premium

Sunrise Ltd. issued 15,000 equity shares of Rs. 10 each at Rs. 12 per share. The amount was payable as Rs. 4 on application, Rs. 5 on allotment including Rs. 2 premium, and Rs. 3 on first and final call. All money was received.

Working

Stage	Amount per share	Capital part	Premium part	Total
Application	Rs. 4	Rs. 4	Nil	Rs. 60,000
Allotment	Rs. 5	Rs. 3	Rs. 2	Rs. 75,000
First and final call	Rs. 3	Rs. 3	Nil	Rs. 45,000
Total	Rs. 12	Rs. 10	Rs. 2	Rs. 180,000

Total share capital:

15,000 x Rs. 10 = Rs. 150,000

Total securities premium:

15,000 x Rs. 2 = Rs. 30,000

Journal Entries

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 60,000
To Share Application A/c		Rs. 60,000
Share Application A/c Dr.	Rs. 60,000
To Share Capital A/c		Rs. 60,000
Share Allotment A/c Dr.	Rs. 75,000
To Share Capital A/c		Rs. 45,000
To Securities Premium Reserve A/c		Rs. 30,000
Bank A/c Dr.	Rs. 75,000
To Share Allotment A/c		Rs. 75,000
Share First and Final Call A/c Dr.	Rs. 45,000
To Share Capital A/c		Rs. 45,000
Bank A/c Dr.	Rs. 45,000
To Share First and Final Call A/c		Rs. 45,000

Now check:

Account	Credit
Share Capital	Rs. 150,000
Securities Premium Reserve	Rs. 30,000
Total	Rs. 180,000

This matches the total money received:

15,000 shares x Rs. 12 = Rs. 180,000

Shares Issued for Consideration Other Than Cash

Sometimes a company purchases an asset and pays the vendor by issuing shares instead of paying full cash.

For example, a company purchases machinery worth Rs. 240,000 and pays the vendor by issuing shares of Rs. 100 each.

If shares are issued at par:

Number of shares = Rs. 240,000 / Rs. 100 = 2,400 shares

Entry:

Particulars	Debit	Credit
Machinery A/c Dr.	Rs. 240,000
To Vendor A/c		Rs. 240,000
Vendor A/c Dr.	Rs. 240,000
To Share Capital A/c		Rs. 240,000

If shares are issued at a premium of 20 percent:

Issue price = Rs. 100 + Rs. 20 = Rs. 120
Number of shares = Rs. 240,000 / Rs. 120 = 2,000 shares

Entry:

Particulars	Debit	Credit
Machinery A/c Dr.	Rs. 240,000
To Vendor A/c		Rs. 240,000
Vendor A/c Dr.	Rs. 240,000
To Share Capital A/c		Rs. 200,000
To Securities Premium Reserve A/c		Rs. 40,000

This example shows the same rule again. Share Capital receives only the face value of shares issued. The extra amount goes to Securities Premium Reserve Account.

Common Mistakes in Issue of Shares at Par and Premium

Mistake 1: Crediting the full issue price to Share Capital

If shares of Rs. 10 are issued at Rs. 12, do not credit Rs. 12 per share to Share Capital.

Correct split:

Account	Amount per share
Share Capital	Rs. 10
Securities Premium Reserve	Rs. 2

Mistake 2: Forgetting where premium is collected

If the question says premium is included in allotment, credit Securities Premium Reserve in the allotment due entry.

If premium is included in application, credit it when application money is transferred.

If premium is included in call, credit it in the call due entry.

Mistake 3: Writing only receipt entries

For allotment and calls, students sometimes write only:

Bank A/c Dr.
To Share Allotment A/c

But before receiving allotment or call money, you usually need the amount due entry:

Share Allotment A/c Dr.
To Share Capital A/c
To Securities Premium Reserve A/c, if premium is included

The due entry creates the company’s claim. The receipt entry records money received.

Mistake 4: Not checking the total

At the end of a question, always check:

Check	Formula
Share Capital	Number of shares allotted x face value
Securities Premium Reserve	Number of shares allotted x premium per share
Bank received	Number of shares allotted x amount actually received

This takes less than a minute and catches many errors.

A Quick Exam Method

Use this method whenever you see an issue of shares question.

Step	What to do
1	Write number of shares allotted
2	Write face value per share
3	Write issue price per share
4	Calculate premium per share, if any
5	Mark where premium is included
6	Make a stage-wise table for application, allotment, and calls
7	Write due entries and receipt entries
8	Check Share Capital and Securities Premium Reserve totals

If you follow this order, you will not feel lost even when the numbers are large.

The Big Picture

Issue of shares at par and premium is not about memorising many entries. It is about respecting two separate buckets.

The face value of shares belongs in Share Capital Account.

The extra amount received above face value belongs in Securities Premium Reserve Account.

Application, allotment, and calls are only collection stages. They tell you when money is received or due. They do not change the basic split between capital and premium.

Frequently Asked Questions

What is issue of shares at par?

Issue of shares at par means shares are issued at their face value. For example, if a share of Rs. 10 is issued at Rs. 10, it is issued at par.

What is issue of shares at premium?

Issue of shares at premium means shares are issued above their face value. For example, if a share of Rs. 10 is issued at Rs. 12, the premium is Rs. 2 per share.

Which account is credited when shares are issued at par?

When shares are issued at par, the amount collected toward face value is credited to Share Capital Account.

Which account is credited for premium on issue of shares?

Premium on issue of shares is credited to Securities Premium Reserve Account. It should not be added to Share Capital Account.

Is premium always collected on allotment?

No. Premium is commonly collected on allotment, but it can be collected with application money or call money if the question says so. Always read the payment schedule carefully.

How do I know the capital part and premium part?

The capital part is based on face value. The premium part is the extra amount above face value. For example, if a Rs. 10 share is issued at Rs. 12, capital is Rs. 10 and premium is Rs. 2.

What is the easiest way to check my answer?

Check that Share Capital equals number of shares allotted multiplied by face value. Then check that Securities Premium Reserve equals number of shares allotted multiplied by premium per share.

Why is Securities Premium Reserve shown separately?

It is shown separately because premium is not ordinary share capital. It is a capital reserve created from the extra amount received above face value.